Property-tax bill rising? Here's one reason why
Now that property-tax bills are hitting mailboxes, I've started to hear variations on this theme: "Why the heck did my tax bill go up if my property assessment went down?"
Blame the Homestead tax credit -- that's the most likely reason, anyway. The complex system for shielding owner-occupiers from big increases has a flip side, namely that many homeowners continue to see their total-due expand in a downturn.
The Homestead credit caps your bill by preventing your taxable assessment -- the amount of your property assessment you're actually taxed on -- from increasing more than a certain percent each year. That ranges by jurisdiction in Maryland from zero to 10 percent. In Baltimore and Baltimore County, it's 4 percent.
As long as the tax rate doesn't change, that effectively caps the increase in your tax bill by the same amount.
But here's the rub:
Say you bought a city home in 2000 when its assessed value was $100,000 and watched the value skyrocket to $200,000 in 2005. Now the assessors say it's worth $170,000. Will you see a tax decrease? No. Because you're only paying on $154,000 of that value -- $100,000 increased by 4 percent each year through 2011.
And if tax rates stay unchanged, you'll keep paying 4 percent more a year until you catch up with your full assessed value -- either by dint of time, more property-value drops or both.
Another Homestead-credit complexity that confuses the heck out of people: New buyers who move in partway through the fiscal year -- which runs July 1 through June 30 -- pay taxes for that partial year as if they were the previous owner, inheriting that person's Homestead credit if there was one. So it's not unusual for a new homeowner's taxes to jump a lot on his or her first July 1 in the property. That homeowner won't be eligible for the Homestead tax break until the following July.
Also, keep in mind that big renovations can affect your tax bill even if you have the Homestead credit. That's another "whaaa?" moment for homeowners.
If you're itching to appeal your assessment, here's a post with links that will get you going in the right direction. Just remember that an appeal will only decrease your taxes if you can get your property assessment lowered to an amount below what you're actually paying taxes on now.
If your bill doesn't note that taxable assessment, just your full assessment, never fear. You can figure it out.
First, look for the line that tells you how much your jurisdiction -- Baltimore or one of the counties -- is taxing you before the effect of the credit. Subtract the credit amount to get your bottom-line locality tax.
Multiply that number by 100.
Divide by your locality's tax rate, which should be on the bill but is also listed here -- well, last year's fiscal rates are, at least. (They're shown per $100 in value, which is why you needed to multiply by 100 first.) For Baltimore, it's $2.268.
And there you are -- your taxable assessment. This is the important number: If you appeal and persuade the state that your property is worth less than this amount, you'll lower your tax bill. But if, as in the example of the city homeowner above, your true value is between your $170,000 full assessment and your $154,000 taxable assessment, you'll see no (immediate) effect on your taxes.
If you're planning to sell and you're in this "in between" situation, you might want to appeal anyway to save your prospective buyers the trouble of appealing themselves. Or maybe you don't, if you're convinced that a lower assessed value will interfere with your asking price. This seems to be a point of some contention. What do you think, buyers, sellers?